From the Publisher: Supervalu’s wrong turn

Financial gurus say that Supervalu’s poor earnings report is a harbinger of things to come for the rest of the industry. That may not be correct.

The sky is not falling on the supermarket industry, despite what some may have said after Supervalu issued its depressed and depressing earnings report in mid-July.

In fact, the reason Supervalu posted such a negative report may actually be because a lot of the supermarket industry, including Walmart and Target, is catching on to the fact that they have to be better merchants and marketers to make it in the rough and tumble world of grocery retailing.

Not-so-fickle consumers have made it clear that retailers better be on their games and offer something unique—whether it is price, convenience, product assortment or even clean, updated stores—to get and keep their attention, particularly in rough economic periods.

Executives at Supervalu, apparently, did not get the memo. Some industry observers have long said that many Supervalu stores—particularly the Albertsons units the company overpaid for six years ago—are not well-run, managed or, frankly, in good operating shape. In the words of one consumer, “There is simply nothing special about the Supervalu stores in my area.”

The fact that Supervalu went deep into debt for the Albertsons operation in 2006 and is still trying to figure a way out of it does not help.

The chain reported that its fiscal first quarter earnings per share dropped by almost half from a year earlier and its sales fell by 4.7% from the previous year. Officials for the Eden Prairie, Minn.-based company, which also owns Jewel/Osco, Acme and Save-A-Lot, said they were was suspending its dividend. The end result was a drop in its stock price to a level not seen in about 30 years.

Now there is talk of Supervalu putting itself up for sale, selling off the Albertsons division or searching for some type of partnership to get itself out of this hole. Good luck with that.
No one following Supervalu should have been surprised by its financial announcement on that hot July morning. While the Save-A-Lot operation has performed admirably in the low-priced segment of the supermarket industry, the other divisions just have not been able to keep up with the competition.

Unfortunately, a number of financial soothsayers took the opportunity to paint a negative picture of the entire supermarket industry and the American economy in general by pointing to this development as indicative of a trend that consumers were quickly shutting down. Supermarkets, they say, should expect some rough sailing over the next few months or longer.

The fact is that the economy is slowing and these are not the best times for any retail operation. But unlike Supervalu and any other supermarket chain that fails to take the necessary steps to create brands that are unique in a very crowded marketplace, grocery stores, as a whole, remain in much better position than other businesses to survive any long-term economic downturn.

The key is to make sure that your chain stays ahead of consumer needs and demands, as well as keeping a close eye on what the competitor is doing down the street.